Gold recovers from two-month low as dollar weakens

Gold prices inched up from a two-month low on Wednesday, as the dollar weakened on concerns over the progress of a U.S. tax reform plan.

Spot gold rose 0.2 percent to $1,268.84 an ounce by 0803 GMT after it hit its lowest since Oct. 6 in the previous session.

U.S. gold futures were up 0.5 percent at $1,271.10.

The dollar edged down on Wednesday, as concerns about a possible U.S. government shutdown offset optimism about progress on tax reform legislation.

The Republican-controlled U.S. House of Representatives voted on Monday to go to conference on tax legislation with the Senate, moving Congress another step closer to a final bill.

However, if lawmakers fail to reach a budget agreement this week, with government funding deadline approaching, the possibility of a government shutdown looms.

"Purely technically, gold is range-bound. We think the dollar strength is not going to last long," said Dominic Schnider at UBS Wealth Management in Hong Kong.

"Gold stays under pressure in the short run as the market is repricing a little bit more Federal Reserve activity next year and the global economy is sparking an uptrend, earnings coming in well and the value for safe-haven assets like gold is diminishing," he said.

The U.S. Fed is almost certain to raise interest rates next week at its final monetary policy meeting for the year, according to a Reuters poll of economists.

"We do not think that Trump's tax reforms will create a long lasting boost to growth nor will they change our stance of two rate hikes next year," Schnider said.

Gold is highly sensitive to rising U.S. rates, as these lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.